DBRS Maintains Stable Outlook on Canadian REITs and REOCs
With the release of its 12th consecutive quarterly update of the Canadian real estate sector today, DBRS has maintained its stable outlook on the sector. The mid-year review is based on Q2 2010 results for Canadian real estate investment trusts (REITs) and real estate operating companies (REOCs), and the stable outlook reflects the sector’s overall liquidity position, continued access to favourably priced capital, stabilizing operating metrics and, in some cases, resumption of portfolio growth through property acquisitions.
“The Canadian real estate sector continues to benefit from remarkably low interest rates on five-year and ten-year mortgages,” says Mark Newman, Vice President, “which should translate into further interest expense savings as REITs and REOCs refinance higher-cost, older debt with lower-cost, new debt.”
A majority of DBRS-rated REITs and REOCs have portfolios entirely focused in Canada and have achieved growth by acquiring and developing assets domestically. However, several REITs, particularly RioCan Real Estate Investment Trust, have more recently displayed a greater interest in acquiring properties in the United States. DBRS attributes higher property valuations and low capitalization rates on domestic properties as the main drivers that have prompted REITs and REOCs to seek investment opportunities outside Canada.
“With access to attractively priced capital markets and financial flexibility, Canadian REITs and REOCs are well positioned to take advantage of investment opportunities in the United States,” concludes Mr. Newman.
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